What do surety bonds cost? It depends on the type of bond and other factors. Here are the most common types of surety bond categories and how pricing is determined for each.
The cost paid for a surety bond is referred to as the “premium”. Surety Bonds can have a one time charge or they can renew annually. For Contract Surety Bonds, it is common to have a one time charge for each contract. However, many commercial bonds, court bonds and fidelity bonds are needed for multiple years. In such cases, the bond premium is due each year until the bond is canceled.
Contract Bond costs such as Performance Bonds, Payment Bonds and Bid Bonds are priced based on the type of work being performed, the underwriting strength of the contractor, and the rate filings of the surety bond company in the state where the work is being performed. Generally, these bonds cost between 0.2% - 4% for most contractors. Generally, these costs are one time for each contract. You can read all about these rates and how to improve them here.
License and Permit Bonds are low risk surety bonds. They generally cost 1% - 4% for most applicants, with most paying 1% - 2%. These bonds can be priced based on the financial strength or credit of the applicant. However, these bonds are often underwritten with only a credit check or little financial information. Therefore, the cost varies very little between applicants.
License and Permit bonds often remain in place for multiple years. The bond premium for these bonds is due annually for each year that the bond remains in place. One way to reduce the premium on these obligations is to purchase multiple years in advance. Many surety bond companies will provide discounts of up to 30% for purchasing multiple year license and permit bonds. Some of the most license and permit bonds are discussed in further detail below:
BMC - 84 Bonds are considered high risk surety bonds and are priced as such. The cost for a BMC-84 bond can range from about $900 to $7,500. These bonds are priced based on credit, financial strength of the freight broker and experience in the business. Strong companies with good financial statements and track records will pay the lower end. However, those with credit challenges, may up to 10% of the bond amount. Freight brokers with decent credit and no financial statements can usually get a bond for around $2,000.
BMC-84 bonds are required to be in place continuously. That means the bond premium will also be due each year. Because these bonds can be canceled, there are companies that will finance the premium for some brokers at an additional cost.
The cost of court bonds ranges from 0.5% for strong corporations to 4% depending on the type of bond. Appeal Bonds are considered riskier and fall on the upper end of the price ranges. In addition to high cost, these bonds can often require collateral as well.
The cost of probate bonds range from 0.5% of the bond amount to 4% of the bond amount. This amount will be due each year until the estate is closed. Probate Bond Costs depend on the complexity of the case. Most probate bonds will fall into the 1% - 2% range. However, cases in dispute, those with businesses or bond principals with lower credit will increase the costs. One way to lower probate bond costs is to get an attorney involved. Bond companies often provide significant discounts on probate bonds if multiple years are purchased in advance.
Forfeiture Bonds are considered the riskiest surety bonds. The surety is required to forfeit, or pay the entire bond penalty if a default is made. As such, these surety bonds carry very high rates. Generally, they cost 2% of the bond amount on the low end and can be as much as 10%.
Often surety bond rates are expressed as a price per thousand of guarantee. For example, a surety underwriter may give a rate of $20 per $1,000. To calculate that rate, you simply take the bond amount and divide it by $1,000. Then multiply that amount by the rate ($20 in this case).
You will see that this is another way to say 2% in this scenario. We’ll explain why rates are quoted this way below.
Surety Bonds are priced in one of two ways. There are flat rates and deviated rates.
A flat rate is just how it sounds. The rate is the same, regardless of the size of the bond. This is common for commercial surety bonds. For example, a 2% flat rate is calculated by taking the bond amount and multiplying it by 2%. The rate is called a flat rate because the cost of the bond remains the same regardless of how big or small the bond amount is.
A deviated surety bond rate is tiered. It generally decreases as the size of the bond gets larger. Deviated rates are very common in contractor surety bonds. For example, a surety bond rate may be expressed as follows:
First $500,000 - $20 per $1,000
Next $2,000,000 - $15 per $1,000
Let’s look at an example of how that would work. Let’s say we need a $2,000,000 bond. The price would be:
$500,000/$1,000 = $500 x $20 = $10,000
$2,000,000/$1,000 = $2,000 x $15 = $30,000
$30,000 + $10,000 = $40,000 Surety Bond Cost
The Surety and Fidelity Association (SFAA) is a non profit organization that collects loss costs and creates manual rules for member companies. Most surety bond companies are members and use this information to file surety bond rates for each class of bond in the states where that bond company issues surety bonds.
There are several key factors that go into making surety rates. These include, the Qualifications of the Principal, the risk of the obligation and both the industry’s and surety bond company’s experience in that type of obligation.
The Principal’s Qualifications are very important in determining surety bond costs. Companies and individuals with higher qualifications will get lower rates while less qualified principals will get higher rates.
In other words, those that have strong financial strength, good credit, and good experience will qualify for the best surety bonds rates. Those with lesser financial strength, low credit scores, bankruptcies, lack of experience and other challenges will pay higher surety rates.
An often-overlooked principal qualification is the scope of financial statements. Surety bonds companies will generally give bond principals with higher quality financial statements better rates. A CPA Audited financial statement qualifies for the best rates, then a Reviewed statement, then a Compiled statement and financially internal financial statements. A company may receive significantly better surety bond rates if it upgrades the scope of its financial statements.
As discussed above, the risk that the surety obligation is covering plays a big role in the surety bond costs. Low risk obligations such as Notary Bonds will cost less than higher risk surety bonds, such as financial guarantee bonds. Surety bond companies generally file a number of rates for each type of risk. This gives them flexibility to adjust the price for the risk for each principal.
The Surety Bond performance as an industry directly affects the costs of surety bonds. The SFAA provides loss costs for different types of surety bonds to its member companies. Surety bond companies can then use this information to develop their own rates for different types of surety bonds. When the industry has performed well for a certain type of surety bond, the loss costs are less, and the bond company may file lower rates. The converse is true when the industry has performed poor for different types of surety bonds.
When the surety bond industry is having great results, both the primary surety bond companies and the reinsurance companies are making money. This often leads to additional capital coming into the surety bond industry. This can create more competition and lower surety bond rates across all types of bonds and industries. Surety Bond companies lower rates to try and write more business and win new accounts. This type of market is referred to as a “soft market”. 2010 to 2022 was considered a soft surety bond market.
When surety bond companies start suffering losses, these losses are also shared with their reinsurance companies. This can lead to companies and investors pulling capital out of the surety bond market. This is referred to as a “hard market”. In a hard market, surety bond rates increase. Surety bond companies often focus less on volume and more on being profitable.
Each surety bond company may price surety bonds based on their own individual experience, regardless of the marketplace. For example, the industry as a whole may be experiencing losses on mortgage broker license bonds. However, a single surety bond company may be performing well in this segment and may choose to price them more favorably. The same can be true when a surety bond company’s losses exceed the industry. The pricing for that company may be higher than other companies in the marketplace.
Surety bond companies typically price surety bonds in one of two ways, which includes Class Rates and Account Rates.
Surety bond companies often have many similar individuals and companies across the country with similar conditions. In the interest of fairness, these companies often price surety bonds with a Class Rate. That means that everyone that falls within a certain class, pays the same rate for the same type of bonds. For example, all companies with a CPA Reviewed financial statement and $10 million - $15 million in net worth would pay similar costs for their license bonds. The underwriter has latitude to assign the company a rate that falls within that class. In order to improve the company’s rates, they would need to increase their net worth or upgrade to a CPA Audited financial statement. Class rates help create fairness within a similar class of customers.
Unlike Class Rates, Account Rates allow an underwriter to give any surety bond rate to an account that they feel is necessary. Account rates can be useful if a bond company is trying to gain market share as it puts less restrictions on the underwriter.
How Much Does a $10,000 Surety Bond Cost?
1.0% = $100
1.5% = $150
2.0% = $200
2.5% = $250
3.0% = $300
3.5% = $350
4.0% = $400
4.5% = $450
5.0% = $500
How Much Does a $20,000 Surety Bond Cost?
1.0% = $200
1.5% = $300
2.0% = $400
2.5% = $500
3.0% = $600
3.5% = $700
4.0% = $800
4.5% = $900
5.0% = $1,000
How Much Does a $50,000 Surety Bond Cost?
1.0% = $500
1.5% = $750
2.0% = $1,000
2.5% = $1,250
3.0% = $1,500
3.5% = $1,750
4.0% = $2,000
4.5% = $2,250
5.0% = $2,500
How Much Does a $100,000 Surety Bond Cost?
1.0% = $1,000
1.5% = $1,50o
2.0% = $2,000
2.5% = $2,500
3.0% = $3,000
3.5% = $3,500
4.0% = $4,000
4.5% = $4,500
5.0% = $5,000
How Much Does a $250,000 Surety Bond Cost?
1.0% = $2,500
1.5% = $3,750
2.0% = $5,000
2.5% = $6,250
3.0% = $7,500
3.5% = $8,750
4.0% = $10,000
4.5% = $11,250
5.0% = $12,500
How Much Does a $500,000 Surety Bond Cost?
1.0% = $5,000
1.5% = $7,500
2.0% = $10,000
2.5% = $12,500
3.0% = $15,000
3.5% = $17,500
4.0% = $20,000
4.5% = $22,500
5.0% = $25,000
How Much Does a $750,000 Surety Bond Cost?
1.0% = $7,500
1.5% = $11,250
2.0% = $15,000
2.5% = $18,750
3.0% = $22,500
3.5% = $26,250
4.0% = $30,000
4.5% = $33,750
5.0% = $37,500
How Much Does a $1,000,000 Surety Bond Cost?
1.0% = $10,000
1.5% = $15,000
2.0% = $20,000
2.5% = $25,000
3.0% = $30,000
3.5% = $35,000
4.0% = $40,000
4.5% = $45,000
5.0% = $50,000
Axcess Surety is the premier provider of surety bonds nationally. We work individuals and businesses across the country to provide the best surety bond programs at the best price.
